The Labor government is looking closely at pruning what it sees as the excessively generous tax concessions enjoyed by superannuation savings, estimated at $35 billion this financial year. No doubt any savings made could be directed to funding preferred government committments such as a National Disability Insurance Scheme.
Commonly expressed opinions directed particularly at the burgeoning Self Funded Super Fund sector. now representing about 40% of superannuation savings, are that it is not equitable to maintain the present level of tax relief for high income earners, and that the rules allow for abuse.
It is true that for many high income earners savings in excess of $1 million are now not uncommon, whereas when I retired 12 years ago the average lump sum to be commuted to a pension was in the vicinity of $0.5 million. Over the period of the Global Financial Crisis the super savings of most self-funded retirees dwindled by about 50%. As a conseequence probably most of those who retired when we did before the GFC came to rely to a greater or lesser degree on the Aged Pension, at considerable expense to the government.
No fair minded person would justify abuse of the superannuation privileges, but there are a few considerations that I believe government should consider before introducing radical cost saving measures to further complicate the already complex rules.
- The Financial Advisory Industry depends disproportionately on the high income earners with larger than usual savings for remuneration.
- In the long run the government is likely to save in lower pension payments what it provides by way of tax concessions; concessions which encourage savings and self reliance.
- Overly rigid rules may result in unnecessary hardship for some. eg. For many, health issues become a significant factor after 55 limiting their capacity to work. Reasonable flexibility in access to superannuation savings is desireable for their benefit.
- Well intentioned investment rules may be counter-productive. Australia has an average 50% reliance on equity allocations. This results in increased volatility of savings but preserves growth potential when markets recover.
The super changes introduced by Peter Costello during the years of the Howard government were greatly appreciated by retirees. Not many retirees are so well off that they can afford not to be careful with their finances as a result.